Why Bigger is Not Better with Healthcare Solutions Companies
In the world of healthcare information technology (HIT), generally speaking, small healthcare technology companies are more successful than large non-industry-specific technology companies in addressing the industry-specific needs of healthcare.
In fact, there are many examples in recent years of large, well-known technology companies aggressively investing in the HIT market with great expectations. Each time they built solutions to address customer needs only to give up after experiencing slow sales, low revenues, negative investment returns, and an inability to capture the mindshare necessary to lead in this market.
Working in the healthcare IT industry for 25 years has given me a unique perspective regarding the shifting dynamic around HIT. I’ve had an opportunity to see who is winning and who is not, learn how to measure marketplace success, and observe trends over the years.
One of the most fascinating aspects has been the way different organizations approach applications and solutions addressing the business and clinical challenges in healthcare today—solutions such as electronic medical records (EMRs), health information exchanges and, most recently, enterprise business intelligence solutions. The differences between small and large players are telling.
Healthcare Technology: How Vertical Healthcare Solutions Differ from Horizontal Solutions
Vertical solutions are set apart from horizontal business solutions by addressing specific challenges unique to healthcare. For example: how to collect the results of patient bedside labs; how to combine portions of a patient’s medical record created and documented in different geographical locations; and how to measure a provider’s compliance with the recommended care protocols for a given disease condition.
This is very different from the horizontal products sold by large technology companies. These products are good at addressing issues common to many industries. Examples include Storage Area Networks for managing large amounts of data, virtualization software to more efficiently utilize physical resources, and highly available systems to meet mission critical uptime requirements.
The software and firmware running these horizontal solutions are industry agnostic. And they can be. A transaction is a transaction, a database is a database, and so on, regardless of what the company using them actually does.
While supporting healthcare operational continuity and data integrity is important at a base level, these solutions fall short with healthcare-specific tasks. For example, they don’t know how to resolve a patient’s infection. They can’t alert a diabetic patient when it has been too long since their last HbA1c. And they can’t submit a medical claim to a patient’s health plan.
Why Large Healthcare Technology Providers Struggle in Healthcare
The core competencies of large, general technology companies often lend themselves nicely to enterprise needs in any complex, information-driven industry. Yet those same core competencies fall short when applied to the vertical space and when addressing the specific needs of a complex industry like healthcare. The reasons for this are multifaceted and interrelated:
- Patience – Healthcare is a cautious industry. Sales cycles are long, and many buyers will not make a purchase unless their peers have demonstrated success with a vendor or product and can show a return on investment. Even after those prerequisites are met, healthcare providers like to start small with low risk and grow their investment after proving they are headed down the right path. This way of thinking is difficult for large technology companies—especially those with proven track records in other industries—to understand. They tend to lose patience when the return on investment of entering the market takes considerably longer than expected. In addition, their initial business projections are normally based on generalized, cross-industry experience and don’t take the unique aspects of healthcare into consideration.
The smaller, healthcare-industry-focused firms, on the other hand, have inherently lower overhead, are usually run by leadership that really understands the industry, and have the awareness to set realistic expectations for growth in their chosen segment. They know what’s important to their buyers because they usually have hundreds of years of experience across their leadership teams. These leaders are also highly connected across the industry to customers and strategic partners.
- Fragmentation and Skepticism – There are many market segments in the healthcare industry, and some certainly yield large deals. For example, some EMR implementations have run into the hundreds of millions of dollars, and EMR vendors have grown to considerable size. It has taken a lot of time and governmental intervention, however, for this market segment to evolve into the success we see today. Early deals were much smaller, return on investment difficult to measure, and it was unclear which vendors would emerge as the market leaders.
Newly evolving market segments are slow to start and are usually crowded by many vendors trying to capitalize on the economic potential of the market. It is difficult for customers to understand and evaluate their choices. This causes confusion in the industry, slow growth in purchases, and a justifiable mistrust on the part of the buying customers. Again, the smaller vendors understand this and are better prepared to weather the storm until the market share leaders rise to the top.
- Brand defocus – A large technology company may have a business unit that understands healthcare and is focused on the vertical requirements of their customers. They are, nonetheless, part of a larger company uninterested in this segment unless it produces large deals consisting of products and services across their brand landscape. The focus (and control) is spread across multiple brands within the company, such as storage, servers, and system-level software and services. Within a large technology company, each of these brands has its own leadership, its own P&L targets, and its own business dynamics and priorities that drive the decision-making process. Even if it is clear to the healthcare business unit that investment is necessary in the early stages, it is difficult or perhaps impossible to convince other business units to agree to a market investment strategy. This drives prices up to noncompetitive levels and causes business rigidity that makes it difficult to compete with smaller, more agile companies.
- Best-of-Breed vs. Corporate Branding – Business units within large, multi-brand technology companies are compelled to sell their corporate products. In many cases, this is in direct conflict with the concept of “the right tool for the job.” There is significant pressure to stick to the corporate brands, even if they bring unnecessary capabilities that drive the price higher without adding value.
Small companies focused on solving the problems of healthcare clients are not restricted by these same pressures and can make tool decisions based on product merits, product value, and overall integration solution pricing. This results in significant price advantage and solution superiority.
- Deal Structure – Large companies, especially those diversified across multiple industries, typically have very structured sales and contracting processes that are difficult to change, take a long time to work through, and may cause considerable pain and consternation for their customers. The development of these rigid structures is easy to understand as companies grow to extremely large sizes and cannot otherwise exert control across large, global organizations. Smaller companies with a strong understanding of the healthcare industry are able to react to the dynamics of the industry and provide the flexibility customers may need to get to closure.
With Technology, Healthcare Specialization Drives Transformation
A small healthcare IT startup is unlikely to be able to provide horizontal, industry-agnostic technology to compete with large companies. However, it is run by healthcare people who have recognized a specific challenge in the healthcare industry not addressed by current solutions on the market. The small HIT startup’s core competency lies in its vertical market knowledge.
Vertical solutions in healthcare exhibit a unique set of qualities addressing a unique set of requirements in the industry. These requirements differ from those in any other industry and are fraught with exceptions and business model indirections, making the healthcare industry operate very differently than others.
Small solution providers are betting their companies—and often their employees’ careers—on successfully solving their clients’ problems. The people who run these companies are passionate about transforming healthcare. They have lived in this industry long enough to be emotionally invested in the problems of their customers. They are nimble, flexible, and able to change direction quickly as the market changes. They are focused on a common mission understood from top to bottom in their companies. And, more often than not, that mission is about transforming the healthcare industry and making a difference in people’s lives.
Click here to see success stories with healthcare-specific solutions.
What differences do you notice between large IT companies and smaller healthcare-specific ones? What were your experiences working with either?